Are you still renting? If so ask yourself why. Is it because you want to be as flexible as possible and not beholden to a mortgage? Is it because you want to be able to move in a short period of time without having to sell anything? Have you invested the difference between your current rent and a mortgage and all the expenses inherent in ownership into another asset to increase your wealth or is it in cash (which is truly “trash” as per Ray Dalio founder/CEO hedge fund of Bridgewater Associates, decreasing your wealth daily)?
The actual value of cash or what is called our “ fiat currency“ has been reduced with the radical increase in our current inflation and the unfortunate and absolute necessity and non-transparency of the Fed. When one adds to the equation the price of energy and food, your real inflation number would be more accurate. If the truth were to be told (which currently it is not), it would send shock waves throughout our economy and purchasing would be drastically reduced (and hoarding might take place as it was with a simple commodity of toilet paper in 2020).
A different psychology and fear would come about and would also play a role in reduced spending. As inflation continues, your dollar’s value and purchasing power goes down, as it is now, then the dollar you have in cash now in 2021 will be worth much less in 2022, by more than 15 percent.
Everything looks very rosy in the current real estate market as spending is way up, mostly because sales slowed and halted for a portion of 2020, but money flowed from the Fed to a huge portion of the population and people were paid not to work. Most didn’t have to pay rent and still don’t (although some could more than afford to), so everyone saved a lot of dollars. Now so many are now spending it and with the supply-chain disruption, limited supply and high demand, prices have escalated, too; but fortunately people are still spending for now.
My professional opinion about inflation is that it will not come down until the supply chain is rectified (more dock workers and truckers need to come back into the market to perform their jobs) and demand for products and durables is reduced as dollars are spread out and move to hospitality, vacations, air travel and other services. Somewhere in the future maybe towards the end of 2022 into 2023, inflation may slow down.
But the continued printing of money (10-plus trillion and counting) and the purchasing of bonds by the Fed (because no one else is) will continue to acerbate the dilution of our currency and its purchasing power. Interest rates, being as low as they are, have been a beneficial boon to homeowners, investors, and businesses as a short term Band-Aid fix (not a permanent fix) but extremely bad for the future of our economy.
As inflation continues, and when and if interest rates increase, the cost of building homes will absolutely increase as they currently have (due to supply chain issues) even under our low historical rates. Demand will cool off as the cost of ownership increases beyond the budgets of the “everyday purchaser” and this in turn will continue to cause builders to slow and in some cases stop constructing homes which will stop adding inventory. However, as more sellers enter the market trying to sell and we eventually get to the six to seven month “normal market inventory” and beyond, prices will normalize and potentially decrease.
Since families and people need to live somewhere, rental prices will increase due to fewer people purchasing and more becoming enters; basic supply and demand economics. However, expensive states like NY, CT, NJ, CA and others will continue to see the exodus of the population (although those who can afford to continue to live there will stay) but adding to other states, e.g. NC, SC, Fla, Tx and other states where the cost of living is considerably less and where rentals will be more advantageous, not only to the renters but also to the investors and landlords.
How will real estate taxes and representation be handled in those states that continue to lose their families? As those expensive states continually increase the costs of living will only add insult to injury, further reducing the number of people who can no longer afford or want to live for their mortgages, real estate, state and local taxes. Also, another variable, global warming, will affect and add to the mix where people live. Could there be a reverse flow back away from those states most affected as temperatures rise?
There are way too many variables in the mix to even guess with any certainty where we are going, but the word “pain” has to be considered as part of the equation, in order to make things come down to Earth once again, or maybe not; and then we will look back and say could have, should have, but didn’t!
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: [email protected]